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4949Business Law and the Legal Environment for a New Century Business Law and the Legal Environment for a New Century
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4949Business Law and the Legal Environment for a New Century Business Law and the Legal Environment for a New Century
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Quote of the DayQuote of the Day“BEQUEATH, v.t. To generously give to
another that which can no longer be denied to somebody.”
Ambrose Bierce,American writer,
“Enlarged Devil’s Dictionary”
4949Business Law and the Legal Environment for a New Century Business Law and the Legal Environment for a New Century
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DefinitionsDefinitions Estate Planning -- giving away property
after (or in anticipation of) death
Estate – the legal entity that holds title to assets after the owner dies
Decedent – the person who died
Testator – person who has signed a valid will (Testatrix is used for a female)
Intestate – to die without a will
4949Business Law and the Legal Environment for a New Century Business Law and the Legal Environment for a New Century
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More DefinitionsMore Definitions Heir – a person who inherits from a
decedent who died intestate (Devisee is the correct term for someone who inherits through a will, though “heir” is often used for either situation.)
Probate – the process of carrying out the terms of the will
Executor or Executrix – personal representative chosen by the decedent to carry out the will (executrix is female)
4949Business Law and the Legal Environment for a New Century Business Law and the Legal Environment for a New Century
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And MORE DefinitionsAnd MORE Definitions Administrator or Administratrix –
personal representative appointed by the court to oversee the probate process (administratrix is the female)
Grantor or Settlor – someone who creates a trust
Donor – someone who makes a gift or creates a trust
4949Business Law and the Legal Environment for a New Century Business Law and the Legal Environment for a New Century
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PurposePurpose Estate planning has two primary goals:
• to ensure that property is distributed as the owner desires
• to minimize estate taxes
There are essentially four ways to distribute your assets:• Gifts• Through a will• Through intestacy• Through a trust
4949Business Law and the Legal Environment for a New Century Business Law and the Legal Environment for a New Century
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GiftsGifts Gifts offer these advantages:
• Gifts can be used to reduce estate taxes• Gifts are not taxable to the recipient• Gifts create pleasure
Gifts also have disadvantages:• The donor loses control• Gifts are irrevocable (with some
exceptions)
4949Business Law and the Legal Environment for a New Century Business Law and the Legal Environment for a New Century
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WillsWills A will is a legal document that disposes
of the testator’s property after death. Generally speaking, a person may
leave his assets to whomever he wants. Requirements for a Valid Will
• Legal Age – typically age 18.• Testamentary Capacity – competent and of
sound mind.• No Undue Influence – extreme power to
force someone to do something beyond their desire.
4949Business Law and the Legal Environment for a New Century Business Law and the Legal Environment for a New Century
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Legal TechnicalitiesLegal Technicalities Must be written, signed and witnessed.
A witness may not inherit anything. Holographic Will
• Handwritten and signed by the testator, but not witnessed; in about 30 states, this is accepted if the decedent knew (or expected) he was about to die.
Nuncupative Will• Oral will just before dying; valid if decedent
knows he is dying, and three witnesses are aware that they are hearing a will.
4949Business Law and the Legal Environment for a New Century Business Law and the Legal Environment for a New Century
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Distributing AssetsDistributing Assets Spouse’s Share
• In community property states, this is half. In other states, it is usually 33% - 50%.
• Under the Uniform Probate Code, the surviving spouse is given the greater of: $50,000 or a percentage (increases with the number of years of the marriage.)
Children’s Share• Parents are not required to leave assets to
their children. But...• The law presumes that a pretermitted child
(not mentioned in a will) is left out by mistake.
4949Business Law and the Legal Environment for a New Century Business Law and the Legal Environment for a New Century
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Per stirpes vs. Per capitaPer stirpes vs. Per capita Per stirpes – each branch of the family
receives an equal amount, so if a child dies before the parent, his heirs split his share.
Per capita – each heir receives an equal amount -- total inheritance is divided equally among living children and grandchildren, for example.
4949Business Law and the Legal Environment for a New Century Business Law and the Legal Environment for a New Century
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Amending a WillAmending a Will A testator can generally revoke or alter
a will at any time prior to death.
Codicil – an amendment added to a will to change specific terms of the will; must meet all the requirements of a will.
A will is automatically revoked if a change in family situation, such as marriage or divorce, was not provided for in the will.
4949Business Law and the Legal Environment for a New Century Business Law and the Legal Environment for a New Century
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Contractual WillsContractual Wills A testator cannot revoke a contractual
will, that is, a will that was signed as part of an agreement with another person.
Under the UPC, a reciprocal will can be revoked unless it specifically states that it cannot be, or unless the testator signs a separate contract promising not to revoke it.
4949Business Law and the Legal Environment for a New Century Business Law and the Legal Environment for a New Century
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Rules of IntestacyRules of IntestacyIf the decedent has: Then…issue (children/grandchildren), but no spouse
Issue inherit entire estate.
spouse, no parents or issue Spouse inherits entire estate.
spouse & parents, no issueSpouse inherits $200,000 and 75%of balance, parents inherit rest.
spouse and issue, all byspouse
Spouse inherits entire estate.
issue by someone besidesspouse
Spouse inherits $100,000 and 50%of balance, remainder to issue
no spouse or issue Parents inherit equally.
no relatives State gets property.
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Simultaneous DeathsSimultaneous Deaths The UPC (and many state laws)
provides that when two people who would inherit from each other die simultaneously (or within 120 hours), both are deemed to have been the last to die.
This provision allows the decedent’s assets to be passed to their second-in-line without first going to the other (simultaneous) decedent’s estate.
4949Business Law and the Legal Environment for a New Century Business Law and the Legal Environment for a New Century
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Power of AttorneyPower of Attorney A durable power of attorney is a
document that allows you to empower another person to conduct legal business on your behalf.• An immediate power takes effect when
signed.• A springing power takes effect at some time
in the future.
4949Business Law and the Legal Environment for a New Century Business Law and the Legal Environment for a New Century
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ProbateProbate Once a testator dies, the executor takes
over: The executor must:• Admit the will to probate.• Send notices.• Gather assets.• Manage assets.• Pay debts and expenses.• Pay taxes and file estate tax returns.• Distribute assets.
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Property Not Transferred by Will
Property Not Transferred by Will
A will does not control the distribution of:• joint property, • retirement benefits, or • life insurance.
4949Business Law and the Legal Environment for a New Century Business Law and the Legal Environment for a New Century
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Anatomical GiftsAnatomical Gifts The Uniform Anatomical Gift Act
(UAGA) allows an individual to indicate her desire to be a donor either by putting a provision in her will or by signing an organ donation card in the presence of two witnesses.
Click here to see a sample organ donation card.
4949Business Law and the Legal Environment for a New Century Business Law and the Legal Environment for a New Century
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Advance Directives RulingAdvance Directives Ruling The Supreme Court ruled that family
members can choose to discontinue treatment for an incompetent person if there is evidence the patient would have made that choice herself.
Assisted suicide, the administration of a lethal substance or prescription of a fatal dose of drugs by a physician, is illegal in almost every state.
4949Business Law and the Legal Environment for a New Century Business Law and the Legal Environment for a New Century
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Advance Directives Practice Advance Directives Practice Living wills or advance directives are
documents which direct medical personnel to withhold extreme lifesaving measures in cases where recovery is unlikely.
A health care proxy is a person appointed in a living will to make health care decisions for an incompetent patient.
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TrustsTrusts A trust is an entity that separates legal
and beneficial ownership.• The grantor creates and funds the trust, the
trustee manages the assets, and the beneficiary receives the financial proceeds.
• The trustee technically owns the property, but must use it for the benefit of the beneficiary.
A grantor can create a trust during her lifetime or after death through her will.
4949Business Law and the Legal Environment for a New Century Business Law and the Legal Environment for a New Century
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Requirements to Create Trust Requirements to Create Trust Legal capacity – legal age and sound
mind Trustee – must appoint trustee, but it
can be yourself Beneficiary – must specify (either by
name or by class – “all living children of…”)
Trust Property – must transfer specific assets to the trust, though amount may be small and added to later
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Advantages Advantages Control – trust document can specify
how the money is to be used.
Children – protect children’s assets.
Tax Savings – minimize estate taxes.
Privacy – documents are not available to the public; probated wills are.
Accessibility – trusts do not have to go through probate, so heirs have quicker access to pre-existing trust funds.
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Types of TrustsTypes of Trusts Also known as an inter vivos trust, a
living trust is established while the grantor is still alive.
A testamentary trust is created by a will.
A charitable trust is created to carry out a charitable purpose.
A spendthrift trust prevents creditors from attaching a beneficiary’s interest in the trust.
4949Business Law and the Legal Environment for a New Century Business Law and the Legal Environment for a New Century
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Types of Trusts (cont'd)Types of Trusts (cont'd)
A totten trust is a bank account held by the grantor “in trust” for someone else.
A resulting trust is created when a trust ends before its assets are exhausted. Assets are returned to the grantor.
If someone wrongfully obtains ownership of property, he is deemed to be holding that property in constructive trust for the real owner.
4949Business Law and the Legal Environment for a New Century Business Law and the Legal Environment for a New Century
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Trust AdministrationTrust Administration In carrying out the terms of the trust, the
trustees have a fiduciary duty to the beneficiary.• Duty of Loyalty• Duty of Care
4949Business Law and the Legal Environment for a New Century Business Law and the Legal Environment for a New Century
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TerminationTermination A trust ends upon the occurrence of any
of these events:• On the date indicated by the grantor.• If the trustee is revocable, when revoked by
the grantor.• When the purpose of the trust has been
fulfilled.
The Rule Against Perpetuities specifies that a trust must end within 21 years after the death of some named person who is alive when the trust is created.
4949Business Law and the Legal Environment for a New Century Business Law and the Legal Environment for a New Century
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“Reasonable people can disagree about almost every issue -- to whom property should be left,
whether a living will is a good idea, the appropriateness of a trust… but these are important issues to
think about… and decide.”
4949Business Law and the Legal Environment for a New Century Business Law and the Legal Environment for a New Century
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